2003 sharma, chrisman, chua

Predictors of satisfaction with the succession process in

family firms

Pramodita Sharmaa,*, James J. Chrismanb,c, Jess H. Chuac,1

aSchool of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada N2L 3C5bDepartment of Management and Information Systems, College of Business and Industry,

Mississippi State University, Mississippi, MS, USAcHaskayne School of Business, University of Calgary, 2500 University Drive, NW,

Calgary, Alberta, Canada T2N 1N4

Abstract

Recent theoretical developments suggest that satisfaction with the succession process in family

firms is enhanced by the incumbent’s propensity to step aside, the successor’s willingness to take over,

agreement among family members to maintain family involvement in the business, acceptance of

individual roles, and succession planning. Data from incumbent leaders and successors provide strong

support for these relationships. Incumbents and successors disagree, however, about the importance of

each other’s role. This implies a need to align these strategic stakeholders’ perceptions in the family

firm. Our research methodology also highlights the importance of considering multiple stakeholder

groups in conducting family firm research.

D 2003 Elsevier Science Inc. All rights reserved.

Keywords: Family business; Succession; Stakeholders

1. Executive summary

In a recent study, Sharma et al. (2001) developed a model on satisfaction with the

succession process in family firms by drawing on the premises of stakeholder theory as well

as various aspects of organizational, behavioural, and economic theories. Their model

0883-9026/03/$ – see front matter D 2003 Elsevier Science Inc. All rights reserved.

doi:10.1016/S0883-9026(03)00015-6

* Corresponding author. Tel.: +1-519-884-0710; fax: +1-519-884-0201.

E-mail addresses: [email protected] (P. Sharma), [email protected] (J.H. Chua).1 Tel.: +1-403-220-6331; fax: +1-403-282-0095.

Journal of Business Venturing 18 (2003) 667–687

proposes that satisfaction with the succession process is directly affected by (1) propensity of

the incumbent to step aside, (2) the successor’s willingness to take over, (3) agreement among

family members to maintain family involvement in the business, (4) acceptance of individual

roles, and (5) succession planning. We test these relationships using data collected from

incumbent presidents and successors of a sample of family firms.

Univariate results show that incumbents and successors disagreed on important aspects of

the succession process and family firm attributes. The incumbents were more satisfied with

the process and believed more strongly that they were ready to step aside and succession was

planned. This suggests a misalignment of perception. The incumbents may not have

communicated their propensity to step aside and may have been planning the succession

without consulting or communicating with the successors.

Regression results show that the two respondent groups agree on the importance of

succession planning and acceptance of individual roles in the business in determining

their satisfaction with the process. They also indicate that agreement among family

members to maintain family involvement in the business was not important in determining

satisfaction.

They differ, however, in terms of whose attitude is important in determining their

satisfaction. Incumbents indicate that their satisfaction is influenced by the successors’

willingness to take over but not by their own propensity to step aside. Successors, on the

other hand, indicate the reverse—their satisfaction is influenced by the incumbent’s

propensity to step aside but not their own willingness to take over. This is unique evidence

about the importance of the relationship between the perceptions of incumbent and

successor.

This article makes several contributions to the study of family business management.

First, it confirms hypotheses from the literature that were integrated in Sharma et al. (2001).

These hypotheses have not been tested together before. Second, the results suggest an urgent

need to align the perceptions of incumbents and successors in order to increase the

probability of a satisfactory succession process. Third, it highlights the interactive roles

played by incumbents and successors. Fourth, in terms of methodology, the results indicate

that empirical research on family business must take into account the possibility that

different stakeholders in the family business may have very different perceptions about the

issues or topics under investigation. This is one of the first empirical studies of family

business of which we are aware that analysed an issue from more than one stakeholder

group’s point of view.

2. Introduction

Demographic trends suggest that a large majority of family business leaders will retire in

the next decade (US Census Bureau, 2000). Therefore, family business researchers’

preoccupation with leadership succession should not be a surprise (Sharma et al., 1996).

Scholars have been concerned with finding ways to preserve successful ventures, many of

which are or become family firms, beyond the tenure of their founders. To contribute to this

P. Sharma et al. / Journal of Business Venturing 18 (2003) 667–687668

aim, this article describes a study that investigates factors influencing satisfaction with the

succession process in family firms.

In the family business literature, succession means the transfer of leadership from one

family member to another—a goal shared by a majority of family firms (American Family

Business Survey, 1997).2 A successful succession can help a family firm achieve or sustain its

competitive advantage over non-family firms (Cabrera-Suarez et al., 2001) by preserving the

‘‘idiosyncratic knowledge of family character’’ (Bjuggren and Sund, 2001, p. 11) or

‘‘familiness’’ (Habbershon and Williams, 1999, p. 1).

Family firms have subjective and objective performance goals (e.g., Lee and Rogoff, 1996;

Stafford et al., 1999; Tagiuri and Davis, 1992). Thus, family firms cannot be thoroughly

understood unless researchers investigate the factors that influence performance in terms of

both types of goals. Succession is no exception, and its success has two interactive

dimensions—satisfaction with the process and effectiveness of succession (Handler, 1989;

Morris et al., 1997). The former is a subjective assessment of the process and decision and the

latter an objective determination of the impact of the decision on firm performance.

Recently, Sharma et al. (2001) presented a model on satisfaction with the succession

process that draws on the premises of stakeholder theory as well as various aspects of

organizational, behavioural, and economic theories. Aside from helping to distinguish

between the two interactive dimensions of success in succession, it proposes a compre-

hensive model of the factors and interactions that influence initial satisfaction with the

succession process in family firms. The model indicates that the complex interactions of five

factors and their antecedents affect satisfaction with the succession process. This study tests

the direct influences of the five factors: (1) propensity of the incumbent to step aside, (2) the

successor’s willingness to take over, (3) agreement among family members to maintain

family involvement in the business, (4) acceptance of individual roles, and (5) succession

planning.

The study makes several contributions to research on family business management. First, it

confirms hypotheses that arise from the literature and were integrated in Sharma et al. (2001).

These hypotheses have not been tested together before. Second, the results show an urgent

need to align the perceptions of incumbents and successors in order to increase the probability

of a satisfactory succession process. Third, the study highlights the interactive roles played by

the incumbent and the successor. Fourth, the results indicate that empirical research on family

business must take into account the possibility that different stakeholders in the family

business may have very different perceptions about the issues or topics under investigation.

This is one of the first empirical studies of family business of which we are aware that

analysed an issue from more than one stakeholder group’s point of view.

2 Consistent with previous discussions in the literature (e.g., Fredrickson et al., 1988; Pitcher et al., 2000;

Sharma et al., 2001), we focus on voluntary successions where the incumbent has control over the succession

process, as opposed to successions due to death or illness or dismissals by boards or other stockholders with

sufficient ownership rights. Succession due to death or illness is out of the firm’s control, while dismissals are rare

because the incumbent tends to have ownership control. Brown (1993) discusses how to deal with the issues

arising from death or illness in the family firm.

P. Sharma et al. / Journal of Business Venturing 18 (2003) 667–687 669

In the next section, we briefly state our hypotheses. Following that, we describe the data

and analyses. Then, we present and discuss the empirical results. We make our conclusions in

the last section.

3. The conceptual model

Stakeholders are those ‘‘who can affect or be affected by’’ the achievement and nature of

organizational decisions (Freeman, 1984, p. vi). In family firms, all family members are

stakeholders in the succession process as they can, to varying extents, affect or be affected by

leadership transitions (Sharma, 2001).3 Consistent with the underpinnings of systems theory,

this view necessitates developing an understanding of the succession process from the

perspective of all stakeholder groups (Heck and Trent, 1999; Stafford et al., 1999). The extent

to which each stakeholder group can influence the succession process and succession decision

is clearly a function of the stakeholder group’s salience in terms of power, legitimacy, and

urgency (Mitchell et al., 1997).

Based on the premises of stakeholder theory as well as various aspects of organizational,

behavioral, and economic theories, Sharma et al. (2001) presented a model describing how

satisfaction with the succession process is affected by interactions among all of the stake-

holders of the family firm. In the model, satisfaction is influenced positively by the

interactions among five factors and their antecedents. The five factors are (1) the incumbent’s

propensity to step aside, (2) the successor’s willingness to take over the business, (3) extent of

succession planning, (4) family members’ agreement to maintain family involvement in the

business, and (5) acceptance of individual roles.4

Our test of the model is limited to the direct influences of the five factors and focuses on the

incumbent and the successor—the two key stakeholders without whose cooperation the transfer

of leadership cannot be effected (Handler, 1989). Thus, we modify the model and hypotheses

proposed by Sharma et al. (2001) to focus on the perspectives of these two groups of

stakeholders. Fig. 1 shows our simplified model. Our hypotheses are briefly discussed below.

The incumbent leaders of family firms often have significant financial and emotional

investment in the firm, providing them with legitimacy and power (Bjuggren and Sund, 2001;

Cannella and Shen, 2001) to control the succession decision and process (e.g., Lansberg,

4 The antecedents are (1) perceived family harmony, (2) fit between successor’s career interests and the

business, (3) trust in the successor’s abilities and intentions, (4) incumbent’s interests outside the business, (5)

expected payoffs from the business, and (6) presence of an active board. For detailed development of the full

model and hypotheses regarding succession satisfaction, please refer to Sharma et al. (2001).

3 It is the nature of family firms that family and business interests and issues are often confounded. Therefore,

even family members who are neither owners nor employees may affect or be affected by the succession process.

For example, their influence on the family can affect family dynamics and issues that, in turn, can affect the

succession process. For another example, family members also have the tendency to share resources. Therefore,

family members who are neither owners nor employees may, nevertheless, be affected by the succession decision

in terms of the resources available to be shared with them. If they can affect or be affected by succession in the

family firm, then they are stakeholders per Freeman’s (1984) definition of the term. For a thorough discussion

about why all family members must be considered stakeholders, see Heck and Trent (1999).


1999; Schulze et al., 2001). Many of these incumbents have devoted a large portion of their

lives and careers to building up their firms and some of them may find stepping aside

challenging or even frightening because they fear the loss of power, status, or personal

identity.5 Consequently, the incumbent’s propensity to step aside should directly influence the

incumbent’s satisfaction with the succession process. Since a dissatisfied incumbent could

potentially cause the process to falter or create discord within the family, the incumbent’s

propensity to step aside should also affect the successor’s satisfaction level.

Perception will be individualistic; the incumbent and the successor may have different

perceptions about the incumbent’s propensity to step aside. As a direct effect, each stake-

holder’s perception will affect that particular stakeholder’s satisfaction.6

Hypothesis 1a: There is a positive relationship between the incumbent’s perception about the

incumbent’s propensity to step aside and the incumbent’s satisfaction with the succession

process.

Hypothesis 1b: There is a positive relationship between the successor’s perception about the

incumbent’s propensity to step aside and the successor’s satisfaction with the succession

process.

Fig. 1. Determinants of satisfaction with the succession process in the family firm. (I) indicates that the hypothesis

is supported by incumbents and (S) indicates support by successors. *P<.05, **P<.01, ***P<.001.

5 Of course, others may view retirement as a new beginning and desirable outcome (Kets de Vries, 1985;

Lansberg, 1988).6 Through interactions, as discussed in Sharma et al. (2001), each party’s perception has the potential to affect

the other party’s satisfaction. As discussed before, this study is limited to testing the direct effects.


Without a successor willing to take over the family business, the family may have to sell

the business. At best, succession will have to proceed with the reluctant acquiescence of or

resistance by the successor. Therefore, the process will not proceed smoothly, and

satisfaction with the process will be negatively affected (Handler, 1992; Shepherd and

Zacharakis, 2000). On the other hand, once families or incumbents decide to retain

leadership of the firm within the family, the willing successor acquires legitimacy and

power to influence the succession process. Thus, the successor’s willingness to take over

(H2a and H2b) must also influence satisfaction with the succession process for both

incumbents and successors.7

Hypothesis 2a: There is a positive relationship between the incumbent’s perception about the

successor’s willingness to take over the leadership of the family business and the incumbent’s

satisfaction with the succession process.

Hypothesis 2b: There is a positive relationship between the successor’s perception about the

successor’s willingness to take over the leadership of the family business and the successor’s

satisfaction with the succession process.

When financial and emotional assets of other family members are closely tied to the firm,

the succession decision will have a significant impact on these assets. Although the incumbent

and the successor are the key stakeholders in the succession process, these other family

members may influence the process through their combined power, legitimacy, and urgency.

Two primary ways by which these family members may influence the succession process

are through their agreement to maintain family involvement in the business (H3a and H3b)

and their acceptance of mutual roles related to the business (H4a and H4b). The first variable

indicates how these salient stakeholders view the attractiveness of their future stakes in the

family business, while the second indicates whether their roles in the business will enable

them to achieve their goals within the firm. Thus, these variables help determine whether

family members will use their positions in the family and/or firm to hinder or help the

succession process. Put differently, if there is no commitment by other family members to the

goal of succession and no agreement with respect to their future relationships with the

successor, other family members are more likely to attempt to undermine the process of

redistributing company shares, assets, and/or power (cf. Stevenson et al., 1985). This

discordance might delay or stop the succession process (Dyer, 1986; Poza and Messer,

2001). Such disruption is likely to diminish the satisfaction experienced by the incumbent and

successor with respect to the succession process.

Hypothesis 3a: There is a positive relationship between the degree to which family members

agree to maintain family involvement in the business and the satisfaction experienced by the

incumbent of the family firm with respect to the succession process.

7 Similar to the discussion in footnote 5, through interactions, one party’s perception may affect another party’s

satisfaction. This study does not test interactive effects.


Hypothesis 3b: There is a positive relationship between the degree to which family members

agree to maintain family involvement in the business and the satisfaction experienced by the

successor of the family firm with respect to the succession process.

Hypothesis 4a: There is a positive relationship between the degree to which family members

accept each other’s role in the business and the satisfaction experienced by the incumbent of

the family firm with respect to the succession process.

Hypothesis 4b: There is a positive relationship between the degree to which family members

accept each other’s role in the business and the satisfaction experienced by the successor of

the family firm with respect to the succession process.

Succession does not happen spontaneously; a process, not necessarily formal, must be put

in place to transfer leadership from one individual to another. Since leadership succession in

family firms is an emotion-bound issue, it can sometimes raise unpleasant issues for family

members. However, thoughtfully developed succession plans can increase the likelihood of

cooperation among stakeholders in the business and enhance satisfaction with the succession

process (e.g., Dyck et al., 2002). Thus, we contend that, in general, a formal process in the

form of succession planning is preferable to no succession planning because it allows for the

views of the salient stakeholders to be considered and, in varying degrees, to be incorporated

into the process itself. This contention is consistent with the importance accorded to

succession planning in the literature (e.g., Lansberg and Astrachan, 1994; Ward, 1987).

Consequently, we hypothesize that

Hypothesis 5a: There is a positive relationship between the extent to which a firm engages in

succession planning and the satisfaction experienced by the incumbent of the family firm with

respect to the succession process.

Hypothesis 5b: There is a positive relationship between the extent to which a firm engages in

succession planning and the satisfaction experienced by the successor of the family firm with

respect to the succession process.

4. Data and analysis

There is no national list of family firms in Canada. Thus, following other empirical studies

in family business research, we chose a convenience sample. The study used the 604 member

firms of the Canadian Association of Family Enterprise (CAFE), which is the only nation-

wide nonprofit association of family firms in Canada. A previous study (Chua et al., 1999)

found CAFE members to be older and larger than non-CAFE firms.8 It is difficult to imagine

that family firms within a nation would face different succession issues simply because of

8 In the previous study, the list of nonmembers was obtained from a consulting firm. This study did not have

the cooperation of the consulting firm. We did, however, control for size and generation/age in our regression

analysis.


membership in an association. After all, nonmembers can easily become members by simply

paying the membership dues. Nevertheless, self-selection bias cannot be completely ruled

out. For example, even if the succession issues are similar, members may be more willing to

seek help. As a result of effective outside assistance, they may have higher levels of

satisfaction with their succession processes.9

Rich qualitative studies conducted on succession have all observed that the process is

lengthy (Dyck et al., 2002; Handler, 1989; Vancil, 1987) and may take 15–20 years (Ward,

1990). Therefore, it is not possible to pinpoint the exact time at which a family firm begins or

ends the succession process. To make allowance for this ambiguity, we screened the sample

for firms that expected the succession event within the ensuing 5 years and those for which

the event has occurred within the preceding 5 years. The first screening criterion assumes that

if succession is expected to occur within the subsequent 5 years, the process should have

started. The second assumes that the process may still be continuing or, at least, given the

importance of succession, memories will be relatively fresh in the minds of key stakeholders

and their responses will be accurate. Based on these criteria, 509 firms were selected.10

Researchers suggest that the perceptions of incumbents and successors may differ

significantly (Poza et al., 1997). Therefore, we collected data from both incumbents and

successors, using two color-coded, pretested questionnaires. The basic questions asked were

the same, but each version of the questionnaire addressed the individual in more personal

terms. Each respondent was provided stamped self-addressed return envelopes. Usable

responses were received from 177 firms yielding an overall response rate of 34.8%. A total

of 142 responses were received from successors (27.9%) and 118 from presidents (23.2%),

but for only 76 firms (14.9%) did both the incumbent and successor respond. Among these

firms, some incumbents or successors did not respond to all of the questions, reducing the sets

of complete data available to test the hypotheses.11

Tests of nonresponse were conducted using Armstrong and Overton’s (1977) contention

that late respondents are more likely than early respondents to be similar to nonrespondents.

Data received were categorized into three batches based on the timing when they were

received. MANOVA tests were conducted to examine differences in responses among

questionnaires received at different times. No significant differences were found between

early and late respondents, suggesting that sample selection bias was not an issue in this study

(Kanuk and Berenson, 1975; Oppenheim, 1966). Furthermore, t tests on the means for the

dependent, independent, and control variables showed no statistically significant differences

between the matched and full samples for either incumbents or successors.

11 Analysis using the full data sets for incumbents and successors show similar results and are available from

the authors. The results from the matched sample may have the advantage of controlling for variables that were not

explicitly included in our regression model with respect to conclusions drawn about differences in the responses of

incumbents and successors.

10 The choice of 5 years before and 5 years after was arbitrary. More years would have given us a larger

sample at the expense of accuracy in memory recall in the case of those firms for which the event had taken place

and at the expense of information sufficiency in the case of those for which the event had not. Fewer years may

have yielded too few observations to perform the analysis planned.

9 For a discussion about selection bias and its implications, see Heckman (1979).


4.1. Operationalizing the variables

The dependent variable—satisfaction with the succession process—and the five independ-

ent variables were measured with multiple indicators using a 5-point Likert-type rating scale.

In the questionnaire used to collect data on these indicators, each anchor on the scale was

named in order to help the respondents make their choices and, hopefully, to enhance

consistency in interpretation. Although an attempt was made to use established scales where

possible, given the early developmental stage of empirical research on family firms, many of

the scales used were either modified from those used in previous studies (e.g., Handler, 1989;

Malone, 1989; Lansberg and Astrachan, 1994) or developed specifically for this study. The

definition for each variable and the indicators used are presented in the Appendix A.12

The dependent variable was a construct calculated as an equally weighted average of 12

relevant indicators. Each independent variable was also a construct calculated as an equally

weighted average of the relevant indicators. The alpha values for these constructs ranged from

.68 to .93. All constructs except that for incumbent’s propensity to step aside had reliability

coefficients greater than the conventionally accepted guideline of .70. This suggests that

results related to this variable need to be interpreted with caution and attempts should be

made in future research to improve upon this scale.

In addition to the variables related to the hypotheses, we included four control variables

that researchers believe affect the succession process. Christensen (1953) suggests that

succession from founder to the next generation is very different from that occurring in later

generations as the process becomes institutionalised. Therefore, we created a dummy variable

for the generation of the incumbent, starting with zero for the founder.13

Research (e.g., Dumas, 1989; Harveston et al., 1997) suggests that successions involving

an incumbent–successor pair of the same gender are different from those where the two are of

different genders. To take this into account, we created a dummy variable for gender mix,

with a value of zero indicating a same gender succession and a value of one indicating a

cross-gender succession.

Wong et al. (1992) and the American Family Business Survey (1997) suggest that there is a

positive relationship between firm size and successful transfers to the next generation. Thus,

we included firm revenue as the third control variable.

Finally, there could be systematic differences in the responses of the two groups of family

firms in terms of their succession timing status. Therefore, we included a dummy variable to

indicate whether succession had taken place or was still anticipated. Inclusion of this variable

also serves as a test for timing bias. In summary, the four control variables used in this study

12 An anonymous reviewer pointed out that the named anchors on the questionnaire aggregate those who were

barely or just somewhat dissatisfied in the same (not at all satisfied) category. For those questions relating to

satisfaction with the succession process, anything less than some level of positive satisfaction (somewhat,

moderately, fairly, completely) was relegated to 1 (not at all satisfied). This skews the scale. In addition, there is no

neutral point on the scale. With the limited scale and reduced range of responses, our findings with respect to the

mean satisfaction level may be biased upward, the variances on the low side understated, and the coefficients

downward biased.13 Generation is also a surrogate measure of the age of the firm.


are generation of incumbent, gender mix, firm size, and whether succession had taken place or

was still anticipated.

4.2. Data analysis

Descriptive statistics for the sample firms and the dependent and independent variables

were obtained. A univariate comparison of the responses was conducted to test for differences

in the responses from the two groups of stakeholders.

The hypotheses were tested by estimating separate ordinary least-squares regression

models for the two groups of stakeholders. Chow test was performed to ascertain significance

in the overall differences of the two models. We used t tests to compare the coefficients of the

two regression models to identify the independent variables causing the overall differences

between incumbents and successors.

5. Results

The median revenue for the firms in our sample was between $5 million and $10 million.

Out of 76 firms, 7 (9%) had less than $1 million, 22 (29%) between $1 and $5 million, 13

(17%) between $5 and $10 million, 26 (34%) between $10 and $50 million, and 8 (11%) over

$50 million. Thirty-six firms (47%) had undergone succession in the preceding 5 years. Sixty-

five (85%) involved same gender successions (62 male pairs). Forty-nine involved a founder

transferring leadership to the next generation.

5.1. Descriptive statistics and univariate results

Table 1 shows the means, standard deviations, correlations, and alphas for the variables in

the model. The independent variable ‘‘successor’s willingness to take over’’ has the highest

mean value for both incumbents and successors. This suggests a shared perception that the

next generation was willing to take over the leadership role for our sample of family firms.

Incumbents and successors differed significantly in their satisfaction with their families’

succession processes. The mean for the former was 4.22 while that for the latter was 3.74. Both

means are significantly above 3.0, the midpoint of the scale.14 They also differed significantly

in their perceptions about four of the five independent variables, the exception being

perceptions on the extent to which their families agreed to maintain family involvement in

the business. The incumbents’ evaluations of their propensity to step aside, family members’

acceptance of individual roles, and the extent of succession planning undertaken were all

higher than the successors’ evaluations. What is most interesting is that the incumbents’

evaluation of the successors’ willingness to take over was also higher than the successors’ own

evaluation. It is impossible to tell whether this difference is a function of miscommunication

(the successor communicated what he/she thought the incumbent wanted to hear) or

14 Please see footnote 11 for limitations in interpreting these results.


Table 1

Descriptive statistics and correlations

Variables Mean Standard Deviation Cronbach’s 1 2 3 4 5 6 7 8 9 10

Incumbents Successors Incumbents Successors alpha

Satisfaction with

succession

process (1)

4.22*** 3.74 0.58 0.89 .93 � .01 � .03 .15 � .10 .36 .18 .07 .64 .71

Firm size (2) 3.03 3.12 1.15 1.20 .33 � .12 .19 .12 .34** � .06 .04 .03 .00

Gender mix (3) 0.16 0.17 0.36 0.37 .09 � .08 .02 .03 � .11 � .22* � .12 .04 � .10

Generation (4) 0.35 0.32 0.48 0.47 .22 .33** � .14 � .19 .12 � .13 .01 .12 .19

Succession

timing (5)

0.54 0.54 0.50 0.50 � .22 � .07 � .13 � .07 � .14 � .04 � .14 .05 � .13

Propensity

of the

incumbent

to step

aside (6)

3.70** 3.17 0.97 1.18 .68 .21 .10 � .17 .04 � .23 .06 � .02 .19 .27*

Willingness

of the

successor

to take

over (7)

4.38* 4.10 0.70 0.78 .70 .55** � .14 .10 .04 � .12 � .07 .18 .48** .24*

Agreement to

maintain

family

involvement

(8)

3.89 3.92 0.89 0.85 .73 .24 .09 � .13 .15 � .24* .10 .09 .17 .14

Acceptance of

individual

roles (9)

3.99* 3.70 0.80 0.90 .88 .66** .07 .10 .19 � .04 .12 .16 � .02 .46**

Extent of

succession

planning (10)

3.30 ** 2.85 0.75 0.74 .85 .60** .24 � .04 � .03 .24 .27* .24* .19 .36**

Correlations below the diagonal are for incumbents. Those above the diagonal are for successors.

Asterisks beside the means for incumbents indicate significant differences from those for successors.

* P< .05.

** P< .01.

*** P< .001.

P.Sharm

aet

al./JournalofBusin

essVenturin

g18(2003)667–687

677

misinterpretation (the incumbent interpreted the communication in the way he or she wanted to

hear it). Nevertheless, this result is consistent with the recurring pattern of differences in the

perceptions of incumbents and successors regarding the succession process found in this study.

5.2. Regression results

The regression results are presented in Table 2 below. They indicate a highly significant fit;

adjusted R2 are .55 for incumbents and .60 for successors. Tests of conformity with the

assumptions of multiple regression using guidelines suggested by Fox (1991) indicated that

all regression assumptions were satisfied.

Incumbents’ satisfaction with the succession process is significantly and positively related

to the successor’s willingness to take over (confirming H2a), family members’ acceptance of

their individual roles in the business (confirming H4a), and the extent of succession planning

(confirming H5a). However, incumbents do not believe that their own propensity to step aside

is a significant determinant of their satisfaction (rejecting H1a), nor that family agreement to

maintain family involvement is a factor (rejecting H3a).

Successors are more satisfied if family members accept their individual roles (confirming

H4b) and if there is more succession planning (confirming H5b). They differ from the

incumbents, however, in terms of whose attitude is more important to their satisfaction. They

Table 2

Results of regression analysis

Variables Incumbents Successors

Standardized

betas

t values Standardized

betas

t values

Propensity of the

incumbent to step aside

0.01 0.055 0.26 2.676*

Willingness of the

successor to take over

0.39 3.046** 0.14 1.315

Agreement to maintain

family involvement

0.12 0.955 � 0.09 � 0.948

Acceptance of

individual roles

0.28 1.942* 0.37 3.365***

Extent of succession

planning

0.31 2.599* 0.47 4.025***

Firm size � 0.10 � 0.865 � 0.07 � 0.789

Gender dummy 0.06 0.482 � 0.03 � 0.010

Generation dummy 0.16 1.312 0.18 0.006

Succession timing dummy � 0.06 � 0.516 � 0.15 � 1.456

Adjusted R2 .55 .64

F 6.53*** 9.88***

N 47 47

* P< .05.

** P< .01.

*** P< .001.


believe that the incumbent’s propensity to step aside is essential (confirming H1b), but their

own willingness to take over is not (rejecting H2b). Consistent with the perceptions of

incumbents, they do not believe that family agreement to maintain involvement is a factor

(rejecting H3b). Finally, none of the control variables proved to have any significant influence

on the satisfaction levels of either incumbents or successors.

Chow test shows that the two regression models are significantly different (F= 1.80,

P< .10). Tests for differences in the individual coefficients suggest that the two regression

models are different mainly due to the stakeholders’ varying responses to the incumbent’s

propensity to step aside (H1a and H1b: t = 2.85, P < .01) and the extent to which succession

had been planned (H5a and H5b: t = 2.64, P < .02).

6. Discussion

6.1. Univariate results

There are many possible conjectures to explain the differences in perceptions between

incumbents and successors. For example, incumbents could have been more satisfied with the

succession process because theywere in control, and the process, as a result, wasmore consistent

with their views of how it should have been conducted than with the views of successors.

Incumbents may have believed more strongly than successors about their own propensity to

step aside because they did not communicate those propensities to successors effectively.

Similarly, incumbents may have believed that succession was planned to a greater extent

because they had been doing it informally for a long time. Conversely, failure of family

members to communicate their dissatisfaction with the succession process may explain why

incumbents weremore sanguine about familymember’ acceptance of their roles in the business.

Furthermore, incumbents may have compared their own hesitation at the time they took

over with the behaviour of the successors and concluded that the successors were more

willing than the successors actually were. Finally, incumbents’ perspectives of their

businesses may simply have been quite different from those of successors who did not have

as long or as close an association with the firm (Lansberg, 1988). All of these conjectures are

interesting topics for future research.

Whatever the reasons for the differences in perceptions, the most important conclusion to

be drawn from these results is that incumbents’ views of the business and relationships

among family members differs significantly from those of successors (Handler, 1989; Poza et

al., 1997). For researchers, this means that empirical studies will have to be qualified if the

data are collected from only one group of family firm stakeholders. For empirical results to be

interpreted as representing family firms, some consensus among the dominant coalition of

family firm stakeholders (cf. Chua et al., 1999) with respect to the issue studied must be

demonstrated. For members of family firms, this could mean that there is an urgent need for

communication and alignment of perceptions without which satisfaction with the succession

process will likely be lower. This difference reinforces our previous observation that research

about family business should reflect the views of more than one group of stakeholders.


6.2. Regression results

Results indicate that family members’ agreement to maintain family involvement did not

affect either incumbents’ or successors’ satisfaction with the succession process despite

theoretical reasons and previous research (e.g., Babicky, 1987) suggesting that this relation-

ship should hold. A closer examination of the indicators used yields some conjectures for this

finding. The use of the word ‘‘all’’ in the first indicator may have led the respondents to

interpret ‘‘agreement’’ as ‘‘unanimity.’’ If the succession had proceeded or was proceeding

without unanimity, their responses would then show no relationship between this factor and

satisfaction. Future attempts to measure agreement to maintain family involvement should

clarify this. Another conjecture arises from the central role of the incumbent president in two

of the indicators. If the impetus for succession came from the ensuing generation(s), despite

the incumbent’s control over the process, then this might have also introduced noise into the

relationship. Thus, we believe that this relationship should be subjected to further testing

before eliminating it from the theoretical model.

The results show that succession planning improved the satisfaction with the succession

process of both incumbents and successors. This justifies the preoccupation of family

business researchers with succession planning. Further research should try to establish

whether the various dimensions of succession planning—selecting the successor, training

the successor, communicating the succession decision, developing a strategy for the firm after

succession, and defining the post-succession role of the incumbent (Sharma et al., 2000)—

have different impacts on satisfaction and, if so, the reasons behind the differences. Aside

from satisfaction, future research should also investigate whether succession planning

contributes to success with respect to family firm performance after succession.

The perceptions of both incumbents and successors with respect to family members’

acceptance of each other’s roles significantly increased their satisfaction levels. This construct

mainly measures the relative absence of conflicts and the family’s ability to deal with conflicts.

Schulze et al. (2001) suggest that conflicts in family firms may be mitigated by altruism. This

is an interesting direction for future research to pursue. They also suggest that altruism may

cause actions that are unjustifiable on purely economic grounds. Research on the causes and

consequences of altruism in family firms is needed to better understand the trade-offs involved

in decisions, such as succession, when economic and noneconomic considerations may come

into conflict.

The most interesting findings from the regression analysis are with respect to H1a, H1b,

H2a, and H2b. Both incumbents and successors believe that their satisfaction levels are more

strongly influenced by the other party’s attitude than by their own.15 This also means that they

15 The evidence related to the successors’ satisfaction level is stronger than that for the incumbents. Not only

was the regression coefficient for the successors with respect to the incumbent’s propensity to step aside

significantly different from zero, but the coefficients for the incumbents and the successors were significantly

different. While the coefficient for the incumbents with respect to the willingness of the successor to take over was

significantly different from zero and that for the successors was not, the two coefficients were not significantly

different from each other.


both assign heavier responsibility for their own dissatisfaction to the other. This could be a

result of the ‘‘fundamental attribution error’’—suggested by social psychologist Fritz Heider

(1958). Heider argues that human beings have a tendency to excuse their own behavior by

explaining it in terms of circumstances, but hold others responsible for their behavior by

attributing it to their inner dispositions. Further research is needed to determine the

motivations and perceptions that underlie this difference.

From a practical point of view, this difference highlights an important relationship

between the perceptions of incumbent and successor. The attitude of one affects the other’s

satisfaction with the succession process. If we add this insight to the observation that the

successors did not believe as strongly that the incumbents were ready to step aside, we have

an explanation for why the successors were less satisfied with the succession processes their

family firms had undergone. The incumbents in our sample had a higher propensity to step

aside than what was believed by the successors. Unless the incumbents were not truthful in

their responses, there appears to be a communication problem between the two key

stakeholder groups. This failure to communicate could by itself cause the failure of a

succession process.

For example, if an incumbent does not convey that he or she is ready to step aside and

to formulate a succession plan, or does not convey the plan effectively to other members of

the family, then a potential successor could lose interest in the family firm. This, in turn,

may reinforce the incumbent’s perception that the successor is not willing to take over the

business, causing the incumbent to delay the succession planning process and further

strengthen the successor’s perception that the incumbent is not ready to step aside.

Furthermore, a successor who believes that the incumbent is less than eager to transfer

leadership may become resentful or lose confidence. A recent study has shown how such

attitudes may manifest themselves in certain post-succession strategies with particularly dire

performance consequences (Miller et al., in press). Thus, research on how the commun-

ication gap may affect the succession process and succession decision and how that gap

might be closed would be particularly valuable.

7. Conclusions

Successful succession has two dimensions in family firms. One is satisfaction with the

process and the other is performance of the firm after succession. In this article, we presented

the results of a partial test of a comprehensive model on satisfaction with the succession

process developed by Sharma et al. (2001). The data show that incumbents and successors

differ significantly in their perceptions about each other and about relationships among family

members. Researchers (e.g., Handler, 1989) have suggested that family members’ perceptions

may be different, and this study confirms the existence of statistically significant differences

in the context of the succession process. This is an important contribution of the study

because the results imply that empirical research on family business must prepare for different

perceptions and views. At the minimum, this requires empirical results to be qualified

according to which particular family stakeholder group is studied.


Four out of the five hypotheses were supported or partially supported by the regression

results. Incumbents and successors agree that succession planning and family members’

acceptance of individual roles in the business contribute to their satisfaction with the

succession process. They also agree that the decision by family members to continue the

business is not an important determinant of their satisfaction.

They differ in terms of whose attitude is more important in determining their own

satisfaction with the process. Incumbents believe that the willingness of successors to

take over is a significant contributor to their satisfaction, but their own propensity to step

aside is not. Conversely, successors believe that the incumbent’s propensity to step aside

strongly affects their satisfaction and that their own willingness to take over has no

effect.

The results empirically confirm some widely held beliefs, but they also point out a

serious misalignment of perception among family members. Finally, they consistently point

out the importance of investigating more than one stakeholder group when studying family

business.

This study assumes that the incumbent has control over the succession process. In all

cases, the families did have majority ownership of the firms, but we did not verify whether

the incumbent had ownership control or, at least, controlled the dominant familial coalition.

We do not know how this may limit the generalizability of the conclusions. Thus, our study

should be seen as a first step toward understanding satisfaction with the success process

within family firms. Only additional studies on other samples will prove the extent to which

the evidence gathered here can be generalized.

Acknowledgements

We thank Michael Hitt, William Schulze, the guest editors, and three anonymous reviewers

for their helpful comments on earlier versions of this article. We also thank the Centre for

Family Business Management and Entrepreneurship at the University of Calgary for funding

the study. This paper is based substantially on the dissertation of P. Sharma.

Appendix A. Indicators

A.1. Satisfaction with the succession process [Alpha=.93]

Respondents were asked to indicate the extent of their satisfaction with the following on a

5-point scale where 1 = not at all satisfied, 2 = satisfied to some extent, 3 =moderately

satisfied, 4 = fairly satisfied, and 5 = completely satisfied

1. The manner in which the succession process was managed.

2. The manner in which the choice of successor was communicated to family members

actively involved in the business.


3. The manner in which the choice of successor was communicated to family members not

actively involved in the business.

4. The manner in which the choice of successor was communicated to key non-family

managers.

5. The process used to determine the potential candidates for succession.

6. The criteria used to select the successor.

7. The process used to train the successor.

8. The process used to familiarize the successor with the business.

9. The process used to familiarize the successor with the employees of the business.

10. The financial arrangements for the outgoing president of your firmuponhim/her retirement.

11. The criteria used for determining the distribution of ownership after the transfer of

leadership to the successor.

12. The suitability of the chosen successor.

A.2. Propensity of the incumbent to step aside [Alpha=.68]

Respondents were asked to indicate the extent of accuracy of the following statements on a

5-point scale with 1 = not at all accurate, 2 = somewhat accurate, 3 =moderately accurate,

4 = fairly accurate, and 5 = completely accurate

1. * The outgoing president of our business did not want to let go of the leadership of the

business.

2. * The outgoing president of our business felt that his or her presence in the business was

necessary to keep it running.

A.3. Willingness of successor to take over [Alpha=.70]




1. The successor had a great deal of confidence in his/her ability to run the business.

2. The successor had a strong desire to take over the business.

A.4. Agreement to maintain family involvement [Alpha=.73]




1. All family members actively involved in our business were deeply committed to the

company continuing as a family business.


2. Members of our family who were not actively involved in our business were deeply

committed to the company continuing as a family business.

3. If none of the younger family members had joined our family firm, family members of the

preceding generation would have been very disappointed.

4. The outgoing president of our business was deeply committed to continuing the business

as a family business.

5. The outgoing president of our business wanted his/her children to enter the business.

A.5. Acceptance of individual roles [Alpha=.88]




1. Our family members accepted their roles and positions in the business.

2. Our family members accepted their relative ownership stakes.

3. Our family members understood their specific roles and responsibilities.

4. Our family members acknowledged each other’s achievements in the context of the

business.

5. Our family members encouraged each other to give his/her best efforts.

6. Members of our family actively involved in the business cooperated and worked as a

team.

7. Our family members freely expressed their opinion about day-to-day decisions in the

business.

8. *Our family members found it easier to discuss problems related to the business with

people outside the family than with each other.

A.6. Extent of succession planning [Alpha=.85]




1. We had an unwritten succession plan for transferring the management control of our

business to the successor.

2. A list of potential successors was developed.

3. Explicit succession criteria were developed for identifying the best successor.

4. Explicit efforts were made to train potential successors for their future role in the

business.

5. Explicit attention was given to familiarize the potential successors with business prior to

the succession.

6. Explicit attention was given to familiarize the potential successors with the employees of

the business prior to the succession.


7. The decision of who the successor would be was clearly communicated to family

members active in the business.

8. The decision of who the successor would be was clearly communicated to key non-

family managers.

9. We had a formal plan regarding the roles and responsibilities of the outgoing president in

the business once leadership was transferred to the successor.

10. We had an unwritten understanding of the roles and responsibilities of the outgoing

president in the business once leadership was transferred to the successor.

11. A financial package was developed for the outgoing president’s retirement.

12. Explicit decisions were made about how ownership of our business would be distributed

after the successor takes over.

13. We had an understanding of what the business strategy would be after leadership was

transferred to the successor.

14. We had an explicit plan for the business after the transfer of leadership to the successor.

15. *We did not have any written succession plan for transferring the management control of

our business to the successor.

*Negatively coded items.

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